Towards Resilience to Nuclear Accidents: Financing Nuclear Liabilities via Catastrophe Risk Bonds

Bilal Ayyub, Athanasios Pantelous, Jia Shao

    Research output: Contribution to journalArticlepeer-review

    5 Citations (Scopus)
    50 Downloads (Pure)

    Abstract

    In light of the 2011 Fukushima disaster, recent discussion has focused on finding the best nuclear storage options, maximizing the oversight power of global institutions, and strengthening safety measures. In addition to these, the development of dependable liability coverage that can be tapped in an emergency is also needed and should be considered thoughtfully. To succeed, financing is essential using special-purpose instruments from the global bond market, which is as big as US$175 trillion. Thus, in this paper, for the first time, a two-coverage-type trigger nuclear catastrophe (N-CAT) risk bond for potentially supplementing the covering of U.S. commercial nuclear power plants (NPPs) beyond the coverage per the Price Anderson Act as amended, and potentially other plants are proposed and designed worldwide. The N-CAT peril is categorized by three risk layers: incident, accident, and major accident. The pricing formula is derived by using a semi-Markovian dependence structure in continuous time. A numerical application illustrates the main findings of the paper.
    Original languageEnglish
    Article number041005
    Number of pages9
    JournalASCE-ASME Journal of Risk and Uncertainty in Engineering Systems, Part B: Mechanical Engineering
    Volume2
    Issue number4
    DOIs
    Publication statusPublished - 19 Aug 2016

    Keywords

    • Accidents
    • Nuclear power stations
    • Liabilities
    • Risk
    • Nuclear power risk
    • semi-Markov environment
    • twocoverage type trigger
    • special purpose vehicle
    • liability
    • global market
    • catastrophe risk bonds

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